The performance was lower than expected.

Liukuo Chemical announced its results for 2013. the company achieved operating income of 5.7 billion yuan and net profit of 14 million yuan, down 80 percent from the same period last year. In 2013, the company plans to pay a cash dividend of 1 yuan (including tax) for every 10 shares, with a distribution ratio of 368%.

The development trend is that the export policy of urea and ammonium phosphate will be relaxed, which may improve the structure of domestic supply and demand. The Ministry of Finance announced that starting from January 1, 2014, the export tax rate on urea and nitrogen fertilizer will be 40 yuan per ton in the off-season and 15% plus 40 yuan per ton in the peak season. The provisional tax rate for MAP and DAP in the off-season is 50 yuan / ton, and the special export tax rate in the peak season is 15% plus 50 yuan / ton. The policy will, to a certain extent, increase domestic exports of nitrogen and phosphate fertilizers and improve domestic supply and demand institutions.

The company will transform to a new type of fertilizer and marketing enterprise. Tongling large synthetic ammonia project has been put into production and has the advantage of the whole industry chain of phosphorus chemical industry. The company will strive to increase the proportion of sales of new chemical fertilizers and increase marketing efforts, which we believe will play a positive role in the performance.

Earnings forecast adjustment: we lowered the company's 2014 earnings per share to 0.05 yuan, a reduction of 80%. We expect earnings per share to be 0.08 yuan in 2015.

Valuation and advice: the current share price corresponds to a PE of 115x and 73x from 2014 to 2015. Maintain the recommended rating with a target price of 6 yuan.

Risk: product demand is lower than expected; downside risk at the center of market valuation.